What is Advance Tax? As per Indian Income Tax Act all the tax payers are required to pay income tax on their expected income of current financial year during the same finance year. For example Mr. X expects his income Rupees Five Lac during finance year 2017-18 and income tax liability is estimated Rs.15000/= after taking all tax savings figures in to consideration. If Mr. X pays this Income Tax in advance i.e. before 31.03.2018, it will be called as payment of advance income tax. However, this amount of advance income tax shall be adjusted against actual income tax payable  on actual income of Mr. X during financial year 2017-18. In simple words, when the amount of income tax for a financial year is paid by the tax payers before expiry of the concerned financial year, then that is called as advance income tax.

Benefits of Payment of Advance Income Tax:- The payment of advance income tax is beneficial from the following reasons:-

  1. From the point of Government, money is received in time because Government needs money to meet its routine expenditures.
  2. From the point of view of taxpayers, it is easy for him to pay the tax in installments. So the burden of one time payment is relieved. After all, tax payer has to pay the tax now or later.

Who is liable to pay Advance Income Tax

All persons whose estimated income tax liability during financial year 2017-18 (assessment year 2018-19), is Rs.10000/= or more, are required to pay advance income tax.

Note:

  • If the amount of advance tax payable is less than Rs.10000/= after deduction of TDS, then there is no need to pay advance tax. In such case the amount of tax can be deposited at the time of filing of income tax return. For example, total tax liability of Mr. X is calculated on estimate basis for financial year 2017-18 for Rs.16000/= and an amount of TDS is  deducted for Rs.7000/=. In this case, he need not to pay any advance income tax, since the amount of tax payable after deduction of TDS, is Rs.9000/= i.e. less than Rs.10000/=. He can pay Rs.9000/= any time before filing his income tax return
  • With effect from financial year 2012-13 (assessment year 2013-14), any senior citizens who is not having any income from business or profession, need not to pay advance income tax.  He/She can deposit the income tax amount any time before filing his/her income tax return.  In simple words, if any senior citizen having income from salary, income from house property, income from capital gains or income from other source but not having any  income from business or profession, is not supposed to pay advance income tax. Senior citizen means a person who has completed 60 years during the relevant financial year. For Example Mr. X is 61 years old. He has to pay total income tax for Rs.260000/= on his income during financial year 2017-18. He files his income tax return on 30.7.2018. In this case, being a senior citizen, he can pay the amount of income tax on or before 30.07.18 because he has to show the proof of payment of income tax in the income tax return.

Due Dates for Advance Income Tax Installments for Financial Year 2016-17 and 2017-18.

Advance Income tax is payable in installments according to the dates given below:-

DATE OF PAYMENT FOR COMPANIES FOR NON-COMPANIES
UP TO 15th June 15% OF TOTAL

15% OF TOTAL

ESTIMATED TAX  ESTIMATED TAX
UP TO 15th September 30% OF TOTAL 30% OF TOTAL
ESTIMATED TAX ESTIMATED TAX
UP TO 15th December 30% OF TOTAL 30% OF TOTAL
ESTIMATED TAX ESTIMATED TAX
UP TO 15th March 25% OF TOTAL 40% OF TOTAL
ESTIMATED TAX ESTIMATED TAX

By 31st March,  If tax on capital gain or casual income arising after 15th March

Important Note for Salaried Tax-payers:- In case of salaried person, income tax is being deducted by the employer on monthly basis and deposited on monthly basis also. It means that total tax payable of an employee is divided in 12 months on estimate basis. In this case the condition of “payment of advance tax” is not applicable.

Illustration:

Mr. X Estimates his total taxable income  for Rs.500000/= for financial year 2016-17. After considering all the deduction u/s Chapter VI-A, The amount of Income Tax liability is Rs.25000/=.  He is 45 years old. Calculate the amount of advance tax to be paid by him.

Solution:

Mr. X is supposed to pay advance income tax during financial year 2016-17 as under:-

DATE OF PAYMENT ADVANCE TAX TO PAY AMOUNT
 UP TO 15.06.16  15% OF RS.25000/=  RS.3750/=
UP TO 15.09.16 30% OF RS.25000/=

RS.7500/=

UP TO 15.12.16 30% OF RS.25000/=

RS.7500/=

UP TO 15.03.15 25% OF RS.25000/=

RS6250/=

TOTAL

25000

How to Deposit Advance Income Tax?  Advance Income Tax can be deposited with any authorized bank by Income Tax Department.  Challan No.280 is used to pay income tax amount.

Note : W.e.f. 01.04.2008 All Companies and the assessees whose accounts are supposed to be audited  U/s 44AB, are required to pay through Internet Banking (Online Payment) only. However, any other assessee also can make payment of income tax through net-banking from his account or from the account of any other person. Advance Tax also can be paid through internet  by way of credit or debit card.

Interest for Short Payment/Non-Payment of Advance Tax Under Section 234-C

The estimate of income, made by the tax payers should be correct to the nearest for payment of advance income tax. If the short payment of advance tax is made more than 10% of actual income tax to be paid, then the tax payer has to pay interest on short-fall amount of income tax under section 234C.

For Assessees other than Companies

If the tax paid up to 15th June is Simple interest of the amount  of
less than 15% of estimated tax short fall 1% per month for 3 months.
If the tax paid up to 15th Sept Simple interest on the amount of
is less than 45% of estimated tax short-fall 1% per month for 3 months
If the tax paid up to 15the December Simple interest on the amount of
is less than 75% of estimated tax short-fall 1% per month for 3 months
If the tax paid up to 15th March Simple interest on the amount of
is less than 100% of estimated tax of short-fall 1% for one month

For Company Assessees

If the tax paid up to 15th June Simple interest on the amount of
is less than 15% of estimated tax short-fall 1% per month for 3 months
If the tax paid up to 15the September Simple interest on the amount of
is less than 45% of estimated tax short-fall 1% per month for 3 months
If the tax paid up to 15th December Simple interest on the amount of
is less than 75% of estimated tax short-fall 1% per month for 3 months
If the tax paid up to 15the March Simple interest on the amount of
is less than 100% of estimated tax short-fall 1% per month for 3 months

With effect from 01.04.17, for business or professional assessees declaring income under estimated income scheme under section 44AD or 44ADA :- If the tax paid up to 15th March is less than 100% of the tax due, simple interest on the amount of shortfall will be charged 1%.

Interest for Short Payment/Non-Payment of Advance Tax Under Section 234B

Other than above, simple interest % is to be paid on any short-fall from 1st April of assessment year to the date of deposit of tax by way of self assessment.

Notes:

  • Interest under section 234B shall not be payable if the advance tax payable is less than Rs.10000/=
  • For the purpose of calculation of interest on amount of shortfall shall be rounded off to the nearest Rs100/=, ignoring any fraction of Rs.100/=

Illustration:

Estimated income tax to be paid by Mr. X for financial year 2016-17 (Assessment year 2017-18) is Rs.50000/=. He paid Rs.5000/= on 13.06.16, Rs.8000/= on 14.09.16, Rs.10000/= on 15.12.16 and Rs.20000/= on 10.03.17. Calculate the interest liabilities on income tax if he pays balance amount along with interest on 12.07.2017.

Solution:

a) Installments of Income tax to be paid

Estimated income tax for F.Y. 2016-17                              Rs.50000/=

Add: Education Cess 2%                                               Rs.1000/=

Add: Secondary & Higher Education Cess %               Rs. 500/=

Total Advance Tax payable                                                  Rs.51500/=

Tax should be deposited on or before 15.06.16   (15%)       Rs.7725/=

Tax should be deposited on or before 15.09.16   (45%)        Rs.23175/=

Tax should be deposited on or before 15.12.16   (75%)         Rs.38625/=

Tax should be deposited on or before 15.03.17   (100%)        Rs.51500/=

b) Interest on Short-fall under section 234C

 

Total

Total

 

Due Date

Amount

Amount

Short fall

Period

Interest

 

Due

Paid

 

 

1% P.M.

15.06.16  7725  5000  2725  3 months  82
15.09.16

23175

13000

10175

3 months

305

15.12.16

38625

23000

15625

3 months

469

15.03.17

51500

43000

8500

1 month

85

Total interest payable up to 31.03.17

941

Note: 90% of  total tax payable of Rs.50000/= is Rs.45000/= but Mr. X deposited Rs.43000/=. It means he deposited less than 90% of total tax amount during financial year 2016-17. Therefore he has to pay interest under section 234C.

c) Interest on late of payment of advance income tax under section 234B and total amount to be paid

Income Tax Payable

8500

Interest Payable for shortfall of Advance Tax Payment under section 234C

941

Interest payable on Rs.8500/= for 4 months 1%

340

Total Amount of tax and interest to be deposited on 12.07.17

9781

Note:

  • Interest is calculated for complete month not in friction of month.
  • Education Cessis charged on amount of income tax payable 2%.
  • Secondary and Higher Education Cess is charged 1% on income tax amount.
  • If 90% of total tax is deposited up to 31.03.17 then no interest is charged on balance amount from 01.04.17 under section 234B. In above illustration, total amount of advance tax paid is less than 90%. That is why interest is being charges 1% from April’2017 to July,2017 under section 234B.

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